MUMBAI: Taking a cue from Health Minister Dr Harsh Vardhan, who has been pushing for higher tax on tobacco products, the Finance Minister Arun Jaitley took a step further from not only increasing excise duty on tobacco, but targeted the aerated drinks as well.

With an eye oncreating a healthier India, the FM has taxed aerated drinks containing sugar, while exempting fruit juices and other aerated drinks like soda.

"I also propose to levy an additional excise duty at 5 per cent on aerated waters containing added sugar. These are healthy measures and I hope everyone would welcome them from the point of view of human and fiscal health," Jaitley said in his speech.

However, the move hasn’t gone down well with the industry.

On the hike, an Indian Beverage Association (IBA) spokesperson says, “We are extremely shocked by the retrograde budget proposal of a 5 per cent hike in excise duty on aerated drinks with added sugar.”

The players point out that the soft drinks industry is already one of the highest taxed categories in the country. The combined impact of CENVAT and state VAT rates reaches 34 per cent in eight states in the country. “Coming on top of the current 12 per cent rate, the additional 5 per cent duty increase will be tantamount to a 40 per cent increase in the central excise duty which would hit the industry hard and cause a major slowdown at a time when demand growth for the industry has been sluggish,” elaborates the spokesperson.

The IBA rebuts the increase by saying that the carbonated soft drinks (CSD) industry is a key segment of the food processing sector in India. It is a significant user of agri products and, with its high labour intensity, contributes significantly to agricultural growth and employment. With a ratio of direct to indirect employment of 1:4, similar to that of the software industry, the industry’s developmental impact is not adequately appreciated. Currently, it employs over 300,000 people, and if there is a conducive environment for growth the industry has the potential to grow at double digit rates and can contribute more than a million additional jobs over the next decade.

“It must also be understood that in a country where options of safe, convenient and hygienic beverages are rather limited, CSDs play a very important role in meeting the hydration needs of people. With this hike in excise duty, the industry will have no option but to increase the price of its products. An increase in price will also fuel the growth of beverage options from the spurious and unorganised sector which, on the one hand, pose significant risk to public health and on the other, will take away tax revenue from the government,” adds the spokesperson.

Parle Agro CMO and JMD Nadia Chauhan says, “In the wake of current hike, we will be evaluating our cost efficiencies for Cafe Cuba, whilst closely observing the change in dynamics of the CSD market. Our immediate focus is to work out a strategic approach that works best in serving consumer interest as well as maintaining the organisation’s operational cost. Whether we will be adjusting our price points, reworking volumes or fine-tuning marketing expenses is a key decision that will be taken basis analysis of all the key factors that determine our pricing strategy.”

As per a report by Euromonitor International, soft drinks off-trade value sales continued to record further growth in 2013 in India. The year also recorded many new launches in flavours across categories including juices, powder concentrates, and carbonates. Leading companies such as Coca-Cola India and PepsiCo India introduced various new flavours across the year. Smaller domestic companies including Hector Beverages and Pioma Industries also followed the suit.

The IBA has urged the government to reverse this hike as it will retard the progress of an industry which can have a significant positive impact on India’s development, particularly in the changed governance scenario in the country.